April 18 (Bloomberg) -- Royal Philips Electronics NV will
cede control of its 80-year-old television unit to an Asian
contract manufacturer, joining European conglomerates including
Siemens AG scaling back consumer electronics as prices decline.

Philips will bundle its TVs, which the Amsterdam-based
company first produced in 1928, into a partnership that will be
70 percent owned by Hong Kong-based TPV Technology Ltd., it said
today. Philips will retain the rest and receive royalties of at
least 50 million euros ($72 million) annually starting in 2013.

Chief Executive Officer Frans van Houten, who took over at
the start of this month, said he started exploring a new
strategy for TVs after realizing that a simple “tweak” would
not have stemmed years of losses. Philips lost 87 million euros
from televisions in the first quarter, and van Houten said today
he’s not yet satisfied with the company’s performance and will
step up investments.

The Dutch company reported first-quarter net income of 137
million euros today, down from 200 million euros a year earlier.
Analysts surveyed by Bloomberg had estimated profit of 165
million euros. Sales rose 6.2 percent to 5.26 billion euros.

Philips shares were down 22 cents, or 1 percent, at 20.87
euros as of 3:10 p.m. in Amsterdam.

Top Priority

Moving TVs into a venture accelerates a transformation of
the Dutch company in the past decade from a diversified
conglomerate into a manufacturer of lighting, health-care
products and consumer electronics including toothbrushes and
electric shavers. Philips sold a semiconductor business in 2006,
got out of mobile phones, and sold a personal-computer monitor
business to TPV for about $358 million in 2004.

Van Houten had made fixing the TV division, which employs
4,000 people, his top priority, after his predecessor struggled
to turn it around for a decade. Heading for its fifth
consecutive annual loss, the television subsidiary has suffered
as Sony Corp. and Panasonic Corp. cut prices to combat local
Chinese suppliers.

Philips was among the last remaining mass-market producers
of televisions in Europe, a niche now largely occupied by luxury
manufacturers including Loewe AG of Germany and Bang & Olufsen
AS from Denmark. Siemens and Nokia Oyj, the world’s largest
maker of mobile phones, made televisions before giving up
production to narrow their focus.

As part of the transaction, Philips has an option to sell
the remaining 30 percent shareholding in the joint venture any
time after the sixth anniversary of the completion.

‘Unlocked Potential’

Philips’s consumer division, its largest by revenue, had
operating profit of 104 million euros in the first quarter,
compared with 162 million euros a year earlier. By contrast,
earnings from health-care equipment rose to 138 million euros
from 103 million euros.

“Philips has a lot of unlocked potential,” Van Houten
said on a call. “We have pockets of excellence. As you have
seen in the first quarter 2011 figures, our course and speed are
not yet satisfactory.”

To unlock this potential, Van Houten overhauled management
to improve accountability and communication between local teams
on the ground and division heads. He pledged today there will be
“money on the table” for those operations that need it and
goals will be tweaked in the second half.

The company has a target for earnings per share to grow at
twice the rate of sales until 2015 as Philips focuses on more
profitable lighting and medical products and faster-growing
markets including India and Brazil. Revenue excluding
acquisitions, disposals and currency shifts will increase 2
percentage points faster than global economic growth, Philips
said when it set the goals.

Van Houten said the company predicts “headwinds” in 2011,
citing the Japanese earthquake, which will affect revenue and
the company’s supply chain. The effects from the quake, which is
disrupting shipments from some suppliers, will become most
pronounced in the third quarter, Philips said.